Asian markets returned to a risk-off tone today, with investor sentiment once again weighed down by the lack of clarity on the US tariff front and the apparent stalling of key trade negotiations. The week’s earlier relief rally following the U.S. court ruling against President Trump’s sweeping reciprocal tariffs has faded, as the legal battle drags on and policy direction remains uncertain. The result is renewed market hesitancy, with equities pulling back and safe-haven flows nudging Yen higher.

In currency markets, the tone is cautious and directionless, with almost all major pairs and crosses confined to last week’s ranges. After a volatile stretch, there’s little momentum to drive breakouts. For the day, Yen is the strongest performer, supported by risk aversion, followed by the Dollar and Kiwi. On the weaker side, the Euro is underperforming, trailed by the Aussie and Sterling. Swiss Franc and Loonie are trading near the middle of the pack.

Thursday’s session in the US captured this shifting mood well as stocks closed well off their intraday highs. That optimism was first driven by the US Court of International Trade’s ruling that struck down most of Trump’s global tariff orders. However, the relief was short-lived. The US Court of Appeals paused that ruling to consider the administration’s appeal, setting a new timeline for responses from both plaintiffs and the government in early June. The pause has restored uncertainty to a situation markets briefly hoped was resolved.

Further dampening sentiment were remarks from US Treasury Secretary Scott Bessent, who confirmed that US-China trade talks are “a bit stalled.” He did, however, hold out the possibility of further engagement in the coming weeks, including a potential leader-level call. Still, Bessent acknowledged that the magnitude and complexity of the negotiations likely require direct involvement from both presidents, a signal that near-term breakthroughs remain unlikely.

Technically, however, EUR/GBP’s break of 0.8400 minor resistance suggests short term bottoming at 0.8354, on bullish convergence condition in 4H MACD. While the rebound might still be a corrective move, further rise is now in favor through 0.8458 resistance to 38.2% retracement of 0.8737 to 0.8354 at 0.8500.

In Asia, at the time of writing, Nikkei is down -1.08%. Hong Kong HSI is down -1.54%. China Shanghai SSE is down -0.30%. Singapore Strait Times is down -0.24%. Japan 10-year JGB yield is down -0.015 at 1.506. Overnight, DOW rose 0.28%. S&P 500 rose 0.40%. NASDAQ rose 0.39%. 10year yield fell -0.053 to 4.424.

Looking ahead, Germany CPI flash is the main focus in European sess. Switzerland will publish KOF economic barometer. Eurozone will release M3 money supply. Later in the day, attention will be on Canada GDP, and US PCE inflation.

Japan’s industrial production falls -0.9% mom in April, but May rebound expected

Japan’s industrial production fell by -0.9% mom in April, a milder decline than the expected -1.4%. The Ministry of Economy, Trade and Industry maintained its view that production “fluctuates indecisively,” reflecting ongoing uncertainty, particularly around global trade developments.

While the ministry said the impact of US tariffs was limited in April, some firms have voiced concern about the manufacturing outlook as policy risks persist.

The breakdown of the data shows a mixed picture: six of 15 industrial sectors saw declines, including production machinery, fabricated metals, and transport equipment excluding motor vehicles. However, eight sectors recorded gains, with electronic parts and business-oriented machinery showing notable strength.

Manufacturers surveyed expect a sharp 9.0% rebound in May, followed by a -3.4% dip in June.

Also released, Japan’s retail sales grew by a stronger-than-expected 3.3% yoy in April, outpacing the consensus of 2.9% yoy. Meanwhile, the unemployment rate remained steady at 2.5%.

Tokyo core inflation accelerates to 3.6%, driven by food and services costs

Tokyo’s core CPI (excluding fresh food) accelerated to 3.6% yoy in May, up from 3.4% yoy and above market expectations of 3.5% yoy, marking the fastest pace since January 2023. This marks the third consecutive year that core inflation has exceeded the Bank of Japan’s 2% target.

While headline CPI ticked down slightly from 3.5% yoy to 3.4% yoy, the underlying core-core measure (excluding food and energy) also edged up fro 2.0% yoy to 2.1% yoy, suggesting broad-based inflation persistence.

The surge in non-fresh food prices, up 6.9% yoy, remains a dominant driver—highlighted by a staggering 93.2% yoy jump in rice prices.

Another notable development is the uptick in services inflation, which climbed to 2.2% yoy from 2.0% yoy , indicating that businesses are beginning to pass on higher labor costs.

Australia retail sales down -0.1% mom in April, weighed by weak clothing demand

Australia’s retail sales turnover unexpectedly declined by -0.1% mom in April, missing expectations for a 0.3% mom rise. On an annual basis, sales were up 3.8% compared to April 2024/

The Australian Bureau of Statistics noted that the decline was driven primarily by reduced spending on clothing. The weakness was partly offset by a rebound in Queensland, where businesses recovered from disruptions caused by ex-Tropical Cyclone Alfred in March.

RBNZ’s Silk: Data to guide timing and need for further cuts

RBNZ Assistant Governor Karen Silk said that interest rates are currently within the estimated neutral band of 2.5% to 3.5%.

She noted that the full impact of previous easing has yet to filter through the economy, making any future adjustments highly dependent on incoming data.

The OCR track indicates “whatever we do is going to be data-dependent, and then we will be looking to the data to help us to decide when or if we cut further from here,” she added.

Fed’s Logan: Policy well positioned, ready to respond to shifting risks

Dallas Fed President Lorie Logan said overnight that with inflation “trending gradually back to target”, the labor market “holding strong”, and risks to Fed’s dual mandate are “roughly balanced.

Speaking at an event, Logan emphasized that “monetary policy is in a good place”, and there is no immediate need for a policy shift.

Logan also highlighted the potential impact of fiscal policy and regulatory changes, noting they could stimulate investment and consumer demand, while elevated economic uncertainty or financial volatility might dampen activity.

Fed’s Daly: Modestly or moderately restrictive policy still needed

San Francisco Fed President Mary Daly, in a Reuters interview, emphasized that above-target inflation remains her “focus” while the labor market is in “solid shape”.

With inflation still running above the Fed’s 2% target and uncertainty around the pace of its decline, Daly said it’s appropriate for monetary policy to remain in a “modestly or moderately restrictive” stance to guide inflation back to target.

Daly added that she’s closely watching for any signs of labor market weakening but hasn’t observed such signals yet. At the same time, she remains attentive to whether inflation continues to gradually ease or risks becoming sticky or re-accelerating.

BoE’s Bailey stresses caution on rate cuts amid inflation surprises and trade uncertainty

BoE Governor Andrew Bailey emphasized the need for a “gradual and careful” approach to future interest rate cuts in light of lingering global trade uncertainty and its impact on domestic inflation.

His comments follow last week’s stronger-than-expected inflation data, which showed UK CPI jumping to 3.5% in April from 2.6%. Bailey noted it remains unclear how much of the increase is due to seasonal factors, and said the BoE will closely examine the next set of inflation data ahead of its June policy decision.

Bailey acknowledged that while core inflation is “gradually grinding down”, the pace of improvement remains sluggish. He also highlighted a renewed rise in food price inflation, which—although not unique to the UK—has a significant influence on public inflation perceptions.

EUR/AUD Daily Outlook

Daily Pivots: (S1) 1.7527; (P) 1.7591; (R1) 1.7709; More…

EUR/AUD’s break of 1.7628 resistance argues that fall from 1.8554 might have completed as a correction at 1.7245. Intraday bias is back on the upside for 38.2% retracement of 1.8554 to 1.7245 at 1.7745. Firm break there will solidify this bullish case and target 61.8% retracement at 1.8054. On the downside, however, break of 1.7460 support will bring retest of 1.7245 instead.

In the bigger picture, as long as 1.7062 resistance turned support (2023 high) holds, up trend from 1.4281 (2022 low) should still be in progress. Break of 1.8554 will target 100% projection of 1.4281 to 1.7062 from 1.5963 at 1.8744. However, sustained break of 1.7062 will confirm medium term topping and bring deeper fall back to 1.5963 support.